Seminar on European Debt Crisis and Economic Governance

On October 31, 2011, a seminar entitled “European Debt Crisis and Economic Governance” was held in the Institute of European Studies (IES), Chinese Academy of Social Sciences (CASS). The seminar was kicked off by the opening remarks delivered by Prof. Jiang Shixue, the deputy director of IES and presided over by the Song Xiaomin, head of the editorial board of the Chinese Journal of European Studies.

Prof. Chen Xin, head of the economics department, IES, first introduced the progress of the European debt crisis. He believed that, in the short term, Europe needs to expand the bailout fund to one trillion euros to enhance the rescue capacity; in the long run, the relevant countries in crisis need to increase economic competitiveness and carry out re-industrialization. Chen also put forward some proposals on how China should respond to the crisis and warned that in the upcoming G20 meeting in Cannes China may be blamed as a scapegoat for the slow recovery of the world economy.

Dr. Quan Xianyin from the Institute of Finance and Banking, CASS, discussed financial transaction tax. He pointed out that the EU plans to avoid fragmentation of its financial market so that the financial sector bears the equal losses caused by the financial crisis, reduces speculative trading in the financial market and improves financial stability of the financial system. The transaction tax will be targeted towards almost all types of financial transactions and financial institutions. In terms of its extensiveness of the tax coverage, it may be an unprecedented attempt in EU history. Currently, an agreement on this tax has not yet to be completely reached by all the EU member countries. And the opposition outside the EU is also prevalent. Therefore, whether the directive draft can be passed remains to be seen.

Dr. Zhao Chen from IES described the evolution of the EU’s financial mechanism and fiscal structure. By reviewing the history of the fiscal conditions, he found that the European Union at different times has focused on different tasks. In the 1960s, a lot of fiscal resources were used to protect agricultural sector; in the 1970s, with the expansion of the market, tariff collection was transferred to the EU; in the 1980s, due to the prevalence of the spirit of solidarity and social democracy advocated by Commission President Jacques Delors, the structural funds rose sharply; in the 1990s, after the completion of the Single Market, VAT became the main source of the EU revenue; in the 21st century, confronted with financial crisis and ecological problems, financial transactions tax and a carbon tax are expected to become the EU’s main source of fiscal revenue. Under the condition that the traditional state taxes are firmly controlled in the hands of the member countries, the EU may expand its fiscal sources by levying new taxes.

Dr. Xiong Hou from IES reviewed the financial sustainability in Europe. He believed that the EU needs to adjust the role of finance in society and economy. If Europe wants to improve its financial sustainability, it must strengthen the coordination of fiscal policy and reduce the excessive welfare spending. After the birth of the euro, the European Union is facing more difficulties in addressing the problem of financial sustainability.

Dr. Zhang Bin from Institute of Finance and Trade Economics, CASS, focused on the EU's fiscal problems. He pointed out that in the long term, the goal of the EU’s financial integration is to gradually carry out a unified policy in taxation, expenditure, employment and social security. But the goal of a unified fiscal policy is not easy to achieve because it means the power reconstruction between the EU and its member states. Perhaps the current crisis can not push member states to adopt a unified fiscal policy.

Prof. Wu Xian believed that, in order to deal with the debt crisis, the EU's economic governance should be improved and financial coordination between member countries should be strengthened. Prof. Tian Dewen analyzed the root cause of the debt crisis, and pointed that the gap between the EU’s "producer countries" like Germany and "consumer countries" like PIIGS appears to be larger and larger because industrial hollowing-out in Greece, Portugal and other crisis countries is the root cause of the debt crisis.